new Zealand-based special-effects company Weta Workshop, whose work includes King
Kong shown here, has been awarded nZ$5.8 million in government funding for a research
partnership with technZ—the business investment program of the foundation for research,
science and technology.
firms, private individuals serving as
“angel” investors, or corporations. During the Internet boom, incubators also
funded weak ideas and weaker teams.
Nonetheless, in markets with limited
venture capital or angel funding, incubators are still useful to help entrepreneurs get started.
It also occurs to me that potentially
even more useful are markets that serve
as natural incubators: small countries
usually overlooked by international
VC firms, either because of their size
or isolation, but which have advanced
economies, sophisticated customers,
good universities, strong intellectual
property rights, favorable tax laws, and
vibrant entrepreneurial cultures. They
might spawn ventures that become
important new sources of wealth, social welfare, and employment—for the
hosts and the world.
Israel (population seven million)
used to be one of these natural incubators. It is the source of numerous important technologies (for example, instant
messaging, security software, software
testing tools, and SAP’s Net Weaver) and
was discovered in the 1980s and 1990s
by the VC community as well as American and European multinationals.
Also, the U.S. provides nearly $3 billion
a year in aid to Israel. This, along with
large defense and security spending,
helps fuel demand for high technology. Another small, advanced market is
Finland (population five million). But
this country is an integral part of Europe, and Nokia’s huge international
success has increased the level of international attention and investment. Ireland (population four million) may fall
into this category (see my October 2005
Communications column, “Software in
Ireland: A Balance of Entrepreneurship
and…Lifestyle Management?”), though
its entrepreneurs generally prefer to remain small and benefit from proximity
to the U.K., with 60 million customers,
and Europe, with a half-billion people.
There may well be other interesting
markets to explore in Southeast Asia,
Africa, and Latin America.
But a truly remote country I have
come to know well is New Zealand
(population four million). Over the
past two years I have visited there
twice, sponsored by the Foundation
for Research, Science, and Technology
(FRST; http://www.frst.govt.nz/), a government agency that invests in R&D
Perhaps the biggest
future challenge will
not be the sector but
projects at early-stage companies.
This experience has encouraged me to
think more about how small, isolated
markets (though not small in land area—New Zealand is as big as California or Japan) can add some new life to
the venture capital industry.
Economically, New Zealand is an
advanced nation, though per-capita income used to rank with Western Europe
and has fallen below Spain. The majority of the economy is services, like other
industrialized nations, but it also relies
heavily on tourism as well as large-scale
exports of agricultural commodities.
The desire for more variety in the economy is one reason why the government
has promoted software, biotech, and
other technology-based entrepreneurship. FRST, established in 1990, annually invests about 500 million New Zealand dollars (US$300 million) in local
company R&D and other promotional
or educational efforts. The government
works with local venture capitalists,
who in 2008 invested NZ$66 million
(US$40 million) in 52 deals (down from
NZ$82 million in 60 deals in 2007). 4
Americans have not ignored New Zealand entirely. Motorola has invested in
Opencloud (mobile software), Vinod
Khosla in Lanza Tech (bio-fuel), and Sequoia Capital and others in Right Hemisphere (visual collaboration software).
In general, though, most of the world’s
VC firms view New Zealand as too small
and remote to merit much attention;
this is shortsighted. The following brief
descriptions of software-related firms
I visited suggest a wide variety of technologies and ideas are being commercialized in just this one sector:
Endace ( http://www.endace.com) ˲
sells products that probe and monitor networks by putting “time stamps”
on Internet packets. Financial institutions, governments, and other organizations are using the technology to improve security and optimize network
performance. The company is public
on London’s AIM exchange and reported revenues in the last fiscal year
of about US$30 million, with customers in 30 countries.
Framecad ( http://www.framecad. ˲
com) sells machinery and design software as well as consulting services
that enable construction companies
to create small or medium-sized steel-framed buildings. These are relatively